Some of the problems of recent years have devastated families. Some have lost their homes; more again have suffered because of unemployment and the inability to meet their financial commitments. Even though the recession has receded, there is still some way to go before anyone can expect the return of prerecession years when the future looked good. It is one compelling reason for people of all kinds should ensure their financial lives are in order and making sure they have no financial weaknesses. That includes a couple starting out on married life, parents of children who are growing quickly and even those approaching retirement age.
A Theory
A decade ago now, an American comic strip called Dilbert written by Scott Adams talked about the “Unified Theory of Everything Financial.” It laid out nine principles to follow in order get your finances in order and keep them so. Certainly the recession was a shock to everyone and perhaps made it more difficult but here goes:
- Make a will. It makes sense to have a will, and there is no reason not to get one done immediately whether you have great assets or not.
- Pay off any balances on your credit cards and use them purely for convenience, not to take unaffordable easy credit. (If you seem to be out of control and are paying high interest on balances, consider a term personal loan to pay them off in full.)
- Ensure that you have term life insurance just in case.
- Fund your 401k to the maximum.
- Fund your IRA likewise.
- If you are looking to buy real estate, you should ensure it is affordable. Current interest rates are low so perhaps you should be thinking of taking advantage while that lasts.
- Build up an emergency fund that would cover six months of regular monthly expenses.
- Put any surplus into a low – risk fund and leave it until retirement.
- Get financial advice if you find any of these things difficult or confusing.
It is worth looking at some of these principles in more detail. You may be thinking that it is fine to make a list, but you haven’t the resources to do all these things. If you at least accept them as sensible and responsible, you need to use them as your target.
While it may take you time to build up an emergency fund or create surpluses each month that allow you to build for later years there is no reason not to do it.
Credit Cards
Credit cards are extremely dangerous if you use them irresponsibly. Perhaps you have already found that out? Credit cards are fine if you pay off any outstanding balance at the end of each month. You can make a minimum payment and carry forward a balance, but the interest charged on such a balance is huge. It is all too easy to build up such balances, taking credit that you cannot afford. It is a dangerous road to take.
As an absolute priority, you should look at such balances on which you are incurring high interest and work out a way to pay them off. Current interest rates on personal loans, even those that are unsecured, are low and are likely to remain so in the coming months. There are modern online lenders offering a quick and simple application procedure and immediate decisions. As long as you have a regular income you are likely to find someone willing to help.
Real Estate
Real estate has always been a medium to long term investment that makes sense even if the subprime mortgage crisis dampened consumer confidence. It would be wrong to suggest that anyone should expect growth to return to the prerecession levels in the near future yet to own a home that is affordable should always be an aim.
There is certainly plenty to think about whatever stage of life you have reached. The main thing to realize is that financial problems do not disappear without your taking action. The time you spend looking at your finances and making plans in line with a few principles is time well spent.
A couple of good sources of information about real estate are biggerpockets.com – they’re a well know real estate blog and forum, and investformore.com.
Are you living a financially secure life?
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Editors note: Plunged in Debt is generally about celebrity wealth, however we occasionally get demand to cover basic wealth building topics, so this article is presented here.
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